Russia Expects 30% Surge in Oil and Gas Export Revenues in 2024

Russia’s Finance Ministry has released a budget policy document forecasting a significant increase in the country’s revenues from oil and gas exports in the coming years. According to the report, Russia’s proceeds from oil and gas sales are projected to rise by nearly a third in 2024, reaching $118.2 billion, up from $91 billion in the previous year.

This substantial boost in oil and gas income is expected to account for 6.4% of Russia’s Gross Domestic Product (GDP), a notable increase from the 5.3% recorded this year. The Finance Ministry’s projections further indicate that energy revenues are anticipated to increase to $121.3 billion in 2025 but then slightly decline to $117.1 billion by 2026.

The decrease in oil and gas income as a percentage of GDP by 2026, dropping to 5.6%, is attributed to a “stabilization of the price environment and an increase in the share of oil production at fields with preferential tax treatment,” according to the forecast.

To achieve these financial objectives, the Russian government plans to gradually reduce discounts on Urals crude to align with the Brent benchmark. Currently standing at $20 per barrel, the discount is set to decrease to $15 per barrel in the next year (2024) and further reduce to $10 per barrel in 2025. By 2026, the discount is expected to reach $6 per barrel.

This shift in pricing strategy comes in response to international pressures. In December of a previous year, the European Union (EU) and the Group of Seven (G7) imposed a ban and price cap on purchases of Russian oil, particularly Urals crude. This move aimed to counteract the negative impact of lower Urals crude prices on Russia’s budget revenues. At times, the price of Urals crude has been $35 to $40 per barrel lower than that of Brent.

In a legislative response to these challenges, Russian President Vladimir Putin signed amendments to the tax code for the energy sector in July. These changes reduced the discount on Urals crude to Brent from $25 per barrel to the current $20 per barrel, starting in September.

According to calculations by Reuters, Russia’s oil and gas revenues are set to rise to approximately $7.5 billion in September 2023, marking a 14% increase from the previous month. In September 2022, the corresponding figure stood at $7 billion. This increase is primarily attributed to a 24% month-on-month rise in proceeds from a mineral extraction tax, based on data from industry sources and official statistics on oil and gas production.

Russia’s optimistic forecast for oil and gas export revenues suggests a positive outlook for the country’s energy sector, albeit with a mindful approach to align pricing with international benchmarks and regulations.